Baystate Leader Sees Momentum Even as Seas Get Choppier

Turning the Battleship

Peter Banko was asked if he was frustrated.

He would certainly have good reason to be.

After all, Banko, president and CEO of Baystate Health, had spent the past 17 months or so trying to right the ship at the system — “turning around a battleship in a bathtub,” as he would later tell the audience at a forum on the state of the healthcare sector in the region — and had made a good amount of progress through difficult and unpopular decisions that included layoffs, cutbacks in many departments, and, most recently, buyouts for many employees, resulting in a profitable fiscal 2025.

But by his estimation, provisions within the One Big Beautiful Bill Act (or OB3, as he calls it), signed into law last July, will cost Baystate Health $146 million a year through its specific provisions and their aftereffects, and essentially wipe out all that’s been accomplished and bring the system back to where he started in terms of the size of the hole to dig out of.

“Those reductions wipe out our positive cash flow in one fell swoop,” said Banko, noting that the system exceeded budget expectations for fiscal 2025 and recorded a 3.6% EBIDA (earnings before interest, depreciation, and amortization). “We exceeded our budget expectations by about $50 million; it was the first time we exceeded our budget in six years. But whatever progress we made this year gets eliminated by the One Big Beautiful Bill; we’re down to zero again, and we start from scratch.”

“We’ve got a lot of great work going on behind the scenes that isn’t glamorous and won’t make headlines, but it’s the right work. I feel more optimistic than I’ve felt in a long time.”

So … while frustration would certainly be understandable, and the picture for 2026 is bleak by most accounts (more on that later), he prefers to be upbeat — to a degree.

“That’s because I believe we’ve created some momentum,” he said. “I’m happy with the momentum we’ve created. We’ve got a lot of great work going on behind the scenes that isn’t glamorous and won’t make headlines, but it’s the right work. I feel more optimistic than I’ve felt in a long time.

“I feel like we have the team and the committed board and committed team members that are willing to do the tough work and make the difficult decisions for it to be successful,” he went on, adding that there are certainly more difficult decisions to be made, and more consolidation likely in the healthcare industry — and 2026 is shaping up to be an ultra-challenging transition year for hospitals.

But, overall, he believes the ship has been turned and is positioned to navigate the turbulent seas that are forecasted.

For this issue and its focus on healthcare, we talked at length with Banko about the progress that’s been made, how much of that progress stands to be undone by the OB3, and what happens next as he continues the turn-around assignment he assumed in the fall of 2024.

 

Time of Transition

Banko said the One Big Beautiful Bill Act will result in $1 trillion in cuts nationally and represents “the largest rollback to federal support for healthcare in our lifetimes.”

Most of the impact to the Baystate system will not kick in until October, a month before the midterm elections, he went on, adding that online estimators project that the overall impact to Baystate will be more than $140 million. Broken down, these cuts involve everything from sharp increases to the number of uninsured individuals from Medicaid and the Affordable Care Act to a decrease in funding from Medicaid (MassHealth), to a loss of funds from the 340B Drug Pricing Program.

The impact to the system — and all providers — will be profound, he said.

“A lot of people won’t have insurance, so they won’t have access to coverage or financing,” he explained. “They’re going to delay care, and they’re increasingly have to use the ED when things are really serious, so we’re going to have more overcrowding. It would be shortsighted to say that this will most significantly impact the poor and vulnerable in our community; if you have commercial insurance, you can expect double-digit increases in your premiums the next five years because commercial insurance makes up the difference for Medicare and Medicaid.

“If you’re an employer in this state or anywhere in the United States, you’re going to be paying more for your insurance to cover the gaps here,” he went on, adding that, for systems like Baystate, the impact will be felt in the ER, certainly, but in other realms as well.

When asked to make projections on what will happen across the system and its four hospitals — Baystate Medical Center, Baystate Noble Hospital, Baystate Wing Hospital, and Baystate Franklin Medical Center — Banko said it’s too early to do so, with the specific impacts not likely to be known until the provisions of the bill take effect.

And that won’t be until almost a year from now, he went on, adding that, in most respects, 2026 will be what he called a “transition year.”

“It will be like preparing for a snowstorm,” he told BusinessWest before extending the metaphor further. “Everyone is going to be buying milk and bread and snow shovels; there’s going to be a lot of preparation and action in anticipation of next year.”

When asked how a system prepares for the storm that’s coming, he said the system will continue to make additions and adjustments in the ER in anticipation of more people using that front door instead of primary care.

“We’re aggressively recruiting nurses and physicians for the ER, and we’re working on improving our throughput in the hospital, which impacts the ER,” he explained. “We’re working on improving access and throughput, which will help.”

Overall, he said the system itself will manage, but he’s concerned about the human toll for the cutbacks and their impact on the overall health of the community.

“It will be like preparing for a snowstorm. Everyone is going to be buying milk and bread and snow shovels; there’s going to be a lot of preparation and action in anticipation of next year.”

“Let’s consider this from the humanistic end — someone who had coverage now doesn’t,” he said. “They may be in the middle of cancer treatment; they may be in the middle of a pregnancy. A few months from now, they get diagnosed with a condition, and they delay care, or they’re feeling symptoms, and they know they can’t afford care. From a community standpoint, we’re worried about the impact to the most vulnerable people in our community.

“How do we look our community in the face and say, ‘15% to 25% of you no longer have coverage,’” he went on. “This state has worked so hard, going back to Governor [Mitt] Romney, to provide care for as many people as possible — it’s hard to say all because some people fall through the cracks — and now, it’s all being dismantled.”

 

Bottom Line

And it’s unlikely there will be much, if any, help coming from Washington, Banko opined, noting that, for now, both sides consider what’s happening to be a “political win,” which makes action before the midterms unlikely in his view.

“Behind the scenes, I think everyone knows what the right things to do are,” he went on. “But OB3 has become a political football, so the folks left holding the bag are our governor and our Legislature — they’re going to have to fill a huge budget gap, $4 billion to $5 billion, and I don’t envy them having to try to figure that out. And our healthcare systems are left holding the bag because it impacts us most severely. Who gets lost in this are the people losing coverage — I’m not sure they have a voice at the moment.”

As for the Baystate system itself, Banko said that, when it comes to the progress made in 2025, budget-wise, roughly half is attributable to cost cutting, with the other half coming from revenue growth.

“We saw decent growth in our business last year, above what our expectations were,” he noted, adding that this growth came in ER volume, surgical volume, inpatient volume, and other realms. “More than half our financial improvement was solid revenue growth.”

Looking ahead to 2026, he’s projecting revenue growth of 2% to 3%, with expenses growing 6%.

“And in any business, that’s not a recipe for success,” he went on, adding that the system has identified core growth areas, including overall access to care.

“We lose a lot of our patients to Boston because they can’t get in here. So if we can grow revenue by 6% to 8% and trim some of our costs, that will allow us to stay in the game,” he explained, adding that there will be more cost cutting in the year ahead — at Baystate and most other providers.

There will also be some less profitable services cut back or eliminated by many providers, he said, as well as continued consolidation within the industry as systems look for all-important scale in the wake of the rising costs of doing business.

“We’re talking to a lot of organizations, and with each one, I have a confidentiality agreement that I can’t violate,” he said, withholding comment on rumored talks between Baystate and Mercy Medical Center. “So, I would just say this … everyone is talking to everyone right now. There isn’t a week that goes by that I’m not having a discussion with a competitor, someone in an adjacent market, someone in a non-adjacent market.

“Everyone is viewing the changes from OB3 as transformational, so everyone is trying to figure out the same thing,” he went on. “We’re all talking to one another about, ‘hey, how do we manage this?’ Or ‘can we manage this better together?’”

There is some evidence that scale has not worked out in healthcare, at least as much as it has in other industries, he continued, adding quickly that he believes scale does bring advantages; systems just need to seize those advantages.

“Our overhead costs are about 12.9%,” Banko explained. “Without more scale, we can bring that down to 10%, but best-practice health systems are below 8%, and there’s no way we can get below 8% without more scale.”

In the meantime, and as he mentioned earlier, he senses real momentum across the system, progress in many ways overshadowed by large headlines about layoffs and buyout programs.

“What gets published in the media is just the financial stuff,” he told BusinessWest. “So when we do a layoff or cut costs somewhere, that gets all the media attention, and it gets all the attention inside the organization. But I would say that 80% of the work is non-financial, and we’re making real progress.”